The Ninth U.S. Circuit Court of Appeals yesterday rejected landlords' constitutional challenges to a City of Los Angeles program that compels rent reductions for tenants of buildings in disrepair.

Judge Harry Pregerson, writing for the court, said the four plaintiffs who challenged the city's Rent Escrow Account Program—or REAP—failed to show that their substantive due process rights were violated in the way the city applied the program to their properties. U.S. District Judge Josephine Staton Tucker of the Central District of California correctly dismissed the second amended complaint for failure to state a cause of action, he said, and did not abuse her discretion in denying leave to amend a third time.

The Housing Department may designate a property for REAP when it has identified substantial habitability violations and the landlord has failed to repair them. The tenants then pay a reduced rent, the amount of which depends on the severity of the violations, and have a choice of paying that rent to the landlord or to the city's escrow account.

Funds in escrow may be paid to the tenant, the landlord, or the Housing Department to pay for repairs.

Four Plaintiffs

The landlords who challenged the program—the Sylvia Landfield Trust, Maria A. Lane, Jeff Kern, and Ram and Khushwant Gill—claimed that the program does not benefit the public, but instead takes money from property owners to benefit the city and four nonprofit organizations with which the Housing Department has contracted to help implement the program.

Pregerson, however, said the program serves an important public interest—protecting tenants from unsafe and unhealthy conditions—and that the various components of REAP, including its contracts with outside groups, are rationally related to that purpose.

The nonprofits—the Coalition for Economic Survival, Inner City Law Center, Inquilinos Unidos and Los Angeles Center for Law and Justice—disseminate information about the program to tenants and interview tenants to ensure that property has been repaired before it is released from REAP, Pregerson explained.

He noted that the problem of substandard housing, although national in scope, is particularly acute in the Los Angeles-Long Beach metropolitan area, where a 2011 Census Bureau study showed that more than a quarter of the renter-occupied units were infested with cockroaches and more than two percent with rats, and about four percent lacked consistently working toilets. The plaintiffs who challenged the law, he noted, owned buildings with electrical, plumbing, fire safety, and cockroach problems.

Tenant Participation Encouraged

The judge agreed with the city that encouraging tenants to report violations and to pay rent into escrow once a property has been taken into REAP is important because "withheld rents create additional disincentives for non-compliant landlords."

Pregerson wrote:

"Given the size of REAP and the existence of outside agencies with the necessary expertise in working with tenants, the City's decision to partner with third-party nonprofit organizations is rational."

The plaintiffs, he added, failed to plead any facts to back up their bare assertion that the program was designed to benefit the city and the nonprofits financially.

Did Not Shock Conscience

The jurist went on to say that procedural arguments by the plaintiffs, concerning such issues as the timing of inspections, did not amount to a plausible claim of a substantive due process violation because the city's conduct, even if it occurred as alleged, did not "shock the conscience and offend the community's sense of fair play and decency."

Pregerson was joined by Judges William A. Fletcher and Jacqueline H. Nguyen.

Sylvia Landfield Trust v. City of Los Angeles, 11-55904, was argued in the Ninth Circuit by Encino attorney Lee Grant for the plaintiffs and Senior Assistant City Attorney Claudia McGee Henry for the defendants.